The Future of Social Welfare Programs in Indonesia: From Fossil-Fuel Subsidies to Better Social Protection

This briefing note examines the relationship between fossil-fuel subsidies and Indonesia’s broader policy interventions to promote social welfare. Traditionally, Indonesia has used fossil-fuel subsidies to help alleviate poverty and to control inflation. However, over time, this policy has grown increasingly expensive. It has also been criticized for being inefficient and regressive, given that the rich enjoy a greater proportion of the benefits than the poor. This paper reviews the evidence to explore two contrary beliefs: on the one hand, that fossil-fuel subsidies cannot be reduced because this would harm the poor; and, on the other hand, that reforming fuel subsidies is in fact fundamental to the improvement of social welfare policy in Indonesia. Who is right? What are Indonesia’s ambitions to improve social welfare and how do fossil-fuel subsidies fit in?